Over the past five years, global investment into industrial and logistics property has doubled, reaching a total of US$126 billion in 2017. A sector traditionally prized for its stable income has recently seen dynamic capital growth, and logistics facilities now attract lower yields than retail property in some markets.

This evolution has been driven by exceptionally broad investor appetite for the sector, ranging from private equity vehicles and institutional funds to private individuals and families. Platform and portfolio transactions have become increasingly common among larger investors as they seek large-scale assets.

In western markets, the rise in online shopping is one of the key drivers stimulating this apparently insatiable appetite, as retailer demand for modern distribution facilities continues to grow. In Europe, rental growth forecasts for the sector are healthy, as stock is scarce and demand high. Asia-Pacific markets share these characteristics too. However, as these five key trends demonstrate, they face an arguably more diverse mix of investment drivers, encompassing global trade, manufacturing growth and new infrastructure opportunities.

China moves up the value chain: China’s growth over the past 30 years has been largely based on its status as the workshop of the world. Today, however, the “Made in China 2025” initiative represents a concerted effort to move China up the value chain, with the ultimate aim being for China to compete globally in manufacturing innovative technologies. Modern logistics facilities and high-tech business parks a reseeking more investment to upgrade existing sites and regenerate older brownfield sites.

E-commerce in South-East Asia: A fragmented market, lack of easy online payment methods and a strong shopping mall culture means e-commerce has not yet had the same powerful impact in South-East Asia that it has had in other regions. However, with both Alibaba and Tencent investing heavily in the region in recent months and the introduction of cross-border payment solutions, there is now significant scope for growth. And, as the retail market moves online, demand for modern logistics warehousing in close proximity to major urban centres and transport links will only increase further.

The Belt and Road Initiative: China’s Belt and Road Initiative is already having an impact on markets in the Eurasian region and has led to investment in transport links, power plants and economic zones to benefit Chinese contractors and destination markets. While initial investment has been focused on infrastructure, it is likely to encourage low-cost manufacturing to move to South-East Asia and Africa, especially with new transport links providing significant opportunities in the logistics sector as supply chains are upgraded.

The sheer scale of the vision, coupled with varying levels of institutional effectiveness and market risks, means that progress is expected to be patchy, with staggered opportunities. However, Thailand, Malaysia and Cambodia are already seeing interest from Chinese and international manufacturers and real estate developers.

Tax reform in India: In 2017, the largest tax reform in Indian history was rolled out – the Goods and Services Tax (GST). Prior to this, identical products were sold at different prices across state borders. Now, these price gaps have been closed, as the GST has replaced federal and state taxes, creating much greater uniformity and certainty in the Indian market. This is already having a noticeable impact on supply chains. The removal of checkpoints has resulted in faster distribution of goods, which has led to reduced inventory holding levels and, in turn, amplified demand for warehouses by companies looking to leverage enhanced economies of scale. The knock-on effect has been an increase in warehouse consolidation and, with it, rising investor interest.

The US vs. China: Trade tensions between the US and China in 2018 have caused some businesses to review their strategies and reassess risk. Manufacturers who may face increased tariffs if the situation deteriorates could look at adjusting their supply chains, and many are already looking at contingencies. If the situation worsens, it could lead to businesses seeking to circumnavigate the potential tariffs by reshoring or outsourcing, which could impact Asia-Pacific economies.